Finding the right lender for your home loan can seem like a daunting task in a sea of options of banks, online lenders, mortgage brokers, and other players eager to take your loan application. Before we start house hunting, we need to get our finances in order, shop lenders, compare loan rates, decide what type of loan best fits our situation, get preapproval, and compare estimates.

1 - Financial Assessment - Credit Score, Debt, & Budgeting

The credit score required to get a home loan varies by the type of loan and the lender. With a higher score, you'll have more choices of loan programs and you'll qualify for lower interest rates. Before shopping for lenders, find out your credit score and make sure your credit reports are accurate. You can receive free copies of your reports from each of the three major credit bureaus. Check the reports carefully, and dispute any errors. Next, work on improving your credit. If your score could use some work, first look through your credit reports for errors, late payments, delinquent accounts in collections and high balances. Working on paying off credit card balances, keeping our credit cards below 30 percent of the available credit, and making on-time payments are the best ways to improve your FICO score.

In addition to solid credit, lenders want to see that you can handle your existing debt along with a new mortgage payment, so they’ll look at your debt-to-income (DTI) ratio. This formula adds up all your monthly debts and divides it by your gross monthly income to get a percentage. Many lenders require a DTI ratio below 43 percent, though some loan programs allow up to 50 percent. An ideal DTI ratio for a mortgage is under 36%. Reducing your debt payments will improve your debt-to-income ratio and will free up money to save for a home down payment. To keep your DTI ratio manageable, avoid taking on new loans or making large purchases on credit cards for at least three months before applying for a mortgage. You should stick to this rule until you’ve finalized your mortgage, as lenders can pull up your credit report any time throughout the application process until you close.

An important part of finding the right mortgage is having a good handle on how much house you can afford. A lender could qualify you for a loan that would max out your budget and leave no room for unexpected expenses, but taking out such a mortgage might be a bad financial move. Lenders preapprove you based on your gross income, outstanding loans and revolving debt, Bates says. However, they don’t look at other monthly bills, such as utilities, gas, day care, insurance or groceries, in their calculations. To get a more accurate idea of what you can afford, factor in these kinds of expenses and other financial goals. Look at your monthly net income to calculate how much you should spend on a mortgage payment. “Make a line-item budget for all your monthly expenses, and be conservative about the monthly mortgage payment,” says Bates, who adds that this is especially crucial for first-time homebuyers who might not get their ideal home right away.

2 - Learn what kind of mortgage is right for you

A key aspect of finding the best mortgage lender is being able to speak their language, including knowing the different types of mortgages. Some upfront research can also help you separate mortgage facts from fiction. Many lenders offer conventional loans with as little as 3.5 percent down, and some government-insured loans require no down payment or just 3.5 percent down. Consider FHA loans and USDA loans, and if you’re a veteran, look into VA loans. Keep in mind that if you put down less than 20 percent, many lenders will charge you a higher interest rate and require mortgage insurance. Home loans also vary by term length, such as 15 or 30 years, and by how the interest rate works. With fixed-rate mortgages, the interest rate stays the same for the entire loan term; with an adjustable-rate mortgage, the interest rate periodically increases or decreases, after an initial fixed-rate period.

Some lenders offer a broad mix of mortgages; others specialize in certain types. Once you understand the general options, you can seek out the lenders that offer what you need.

• FHA Loans - Lower credit score requirements than other mortgages and require as little as 3.5% down.

• Conventional loans - Higher credit score requirements, and some require as little as 3% down.

• VA & USDA Loans - Can help active and veteran military member and rural homebuyers. No down payment.

3 - Compare rates from multiple mortgage lenders

Settling on the first lender you talk to isn’t the best idea. Search for the best mortgage rates online from lenders that offer the types of loans you want. Rate-shop with different lenders — banks, credit unions, online lenders and local independents — to ensure you’re getting the best deal on rates, fees and terms. Keep in mind that the rate quote you see is an estimate. A lender will have to pull your credit information and process a loan application to provide an accurate rate, which you can then lock in if you’re satisfied with the product. Try to find a lender that communicates the way you prefer, whether it’s online, via text or in person.

If you don’t shop around, you could be leaving money on the table. Multiple studies, including out of the Consumer Financial Protection Bureau and Freddie Mac, found that comparison-shopping saves borrowers thousands over the course of a 30-year mortgage. Once you have several quotes from lenders, narrow the list to those with the lowest rates. The total interest you pay over the life of the loan is a big figure, and a lower rate can save you thousands of dollars.

You can also use a mortgage calculator to find out an approximate monthly mortgage payment.

4 - Get preapproved

Apply for mortgage preapproval with more than one lender before you start shopping for a home. A mortgage preapproval letter shows sellers and real estate agents that you're a serious buyer. Obtaining a mortgage preapproval with three or four different lenders is really the only way to get accurate loan pricing, because with a preapproval, lenders do a thorough review of your credit and finances. It's evidence that a lender has evaluated your finances and figured out how much you can afford to borrow. Getting preapproved now will also save time later. When you're ready to make an offer on a home, lenders will already have the information they need to process your home loan.

Be mindful: A mortgage preapproval doesn’t mean you’re in the clear. Lenders can re-check your credit, employment and income histories and your assets at any time during the process. If you take out a new car loan, for example, that changes your financial picture and can derail your mortgage. Borrowers should “hold tight” after preapproval and avoid opening new lines of credit, moving around money in your bank accounts and changing jobs before — and during — the mortgage process.

Lenders can have different documentation requirements for preapproval, but Lenders typically require:

• Driver’s license or other government photo ID

• Social Security numbers for yourself and any co-borrowers.

• Past and current residential address history

• List of all financial accounts and bank statements for all accounts for the past 60 days

• Information about outstanding and fixed debt / loan obligations

• Two years of federal tax returns, 1099s and W-2s

• Pay stubs from the past 30 days and employer contact information

• Down payment information, amount, source, gift letters (if applicable)

• Liens, collections or legal judgments (such as IRS actions, bankruptcy, lawsuits)

5 - Compare loan estimates and choose the best deal

A loan estimate is a document a lender must provide after you've applied for a loan and have provided certain information, including the address of the property you want to buy. The document will spell out important details about your loan, including the interest rate, monthly payment, loan processing fees, down payment amount, and estimated closing costs. These items shouldn’t change dramatically from preapproval to closing if your credit and financial profile stay the same. Lenders sometimes offer credits to help lower the amount of cash due at closing. Be aware, though: These credits can push up the interest rate on your loan, which means you’ll ultimately pay more.

You should compare loan estimates from at least three lenders. Read each line to make sure the details match what you expected, and ask questions about anything you don't understand. Then carefully compare costs and terms to choose the best deal for you. As you compare loan estimates from different lenders, you’ll see a slew of third-party costs, such as lender’s title insurance, title search fee, appraisal fee, recording fee, transfer taxes and other administrative costs. You can negotiate some of these closing costs, but know that lenders don’t determine the fees for third-party services — just their own.

Always ask questions if you don’t understand certain fees or spot errors in the paperwork (such as a misspelled name or a wrong bank account). Getting ahead of any issues early can save you a lot of headaches later.